A new double taxation avoidance agreement (DTAA) is being negotiated by Zambia and Mauritius following the decision taken by the government of the Republic of Zambia on 22 June 2020 to terminate the current DTAA signed with Mauritius. The new treaty will introduce shared taxing rights and anti-abuse clauses.

The current DTAA which became effective in June 2012 will cease to have effect on the 31 December 2020 in Zambia and 30 June 2021 in Mauritius.

DTAA, as its name suggests, is a key element in cross-border structuring as it aims at eliminating double tax on the same streams of income and provides more clarity on the various taxation aspects that need to be considered by international investors prior to any investment decisions.

It is also important to highlight that Mauritius is a signatory to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS) (hereunder referred to as the “MLI") since July 2017. The MLI is an instrument used for implementing some of the BEPS minimum standards, including clamping down on treaty shopping through the implementation of tax treaty-related measures in DTAAs.

The definitive instrument of ratification of the MLI was deposited on the 18 October 2019, where it was noted that Mauritius included most of the countries, including all the African countries, with which it has concluded a DTAA. It is however noted that Zambia is yet to sign the MLI.

While the DTAA remains an important consideration for investment structuring decisions, it will be recalled that other factors should also be considered in the choice of an investment platform.

By and large, Mauritius remains the preferred destination as an investment platform into Africa. The reasons for this include Mauritius’ good ranking in the World Bank’s ease of doing business index (it is ranked 1st in Africa), the established legal system and the availability of skilled professionals such as lawyers and accountants. Mauritius also has a favourable time zone and both English and French are fluently spoken and written by professionals. In addition, there is no exchange control in Mauritius, allowing for efficient and timely cross-border movement of funds. It is also important to note that Mauritius has signed Investment Promotion and Protection Agreements (IPPAs) with a number of African countries, including Zambia. This provides additional comfort to investors since this can significantly reduce investment risks in countries where there are risks of nationalisation or expropriation. Furthermore, the IPPAs provide free repatriation of investment capital and returns.

Clients having structures in Zambia and wishing to seek additional advice on how the termination of the current Mauritius-Zambia DTAA will impact on them may get in touch with their usual contact person at ITL or send us an email on info@intercontinentaltrust.com